Jiakeshu Technology Limited v. Amazon.com Services, LLC

Background

Jiakeshu Technology Limited, a corporation formed under Hong Kong law with its principal place of business in China, operated as a third-party seller on Amazon. Its agreement with Amazon required accurate account information, prohibited manipulation of customer reviews, and allowed Amazon to suspend or terminate a seller’s account and withhold payments if Amazon determined that the account had been used for deceptive, fraudulent, or illegal activity. The agreement also required disputes to be resolved through binding arbitration.

Amazon deactivated Jiakeshu’s account on April 29, 2021, alleging that Jiakeshu had manipulated customer reviews, and froze close to $50,000 in sales proceeds. Jiakeshu appealed to Amazon and, according to the opinion, admitted soliciting customer feedback by sending gift cards in exchange for reviews, although it later claimed that it had not solicited sponsored reviews. Amazon later terminated Jiakeshu’s selling privileges. Jiakeshu also did not participate in an identity-verification interview requested by Amazon.

Jiakeshu then demanded arbitration, seeking release of its sales proceeds and reinstatement of its account. In the arbitration, Jiakeshu argued that the agreement’s payment-withholding provision was an unconscionable and unenforceable penalty clause under Washington law and that Amazon breached the implied duty of good faith and fair dealing. The arbitrator rejected Jiakeshu’s claims, finding that Jiakeshu violated the customer-review policies and other agreement requirements and that Amazon had the right to suspend the account and withhold the funds.

Arguments in Federal Court

Jiakeshu petitioned to vacate, or set aside, the arbitration award. It argued that the arbitrator manifestly disregarded the law by enforcing the payment-withholding provision, that the award was completely irrational, and that enforcing the agreement violated Washington public policy. Amazon cross-moved to confirm the award.

The court explained that federal law and the New York Convention provide only limited grounds for refusing to enforce an arbitration award. The party opposing enforcement bears a heavy burden. The court also stated that an award cannot be vacated merely because a court disagrees with the arbitrator’s legal conclusions if there is a barely colorable justification for the result.

Court’s Analysis

The court rejected Jiakeshu’s argument that the arbitrator manifestly disregarded Washington law. Jiakeshu relied on a Washington-law test for determining whether a liquidated-damages clause is enforceable. The court found that the arbitrator had considered the relevant arguments, cited Washington-law decisions including the case Jiakeshu relied on, and provided a sufficient basis for concluding that Jiakeshu breached the parties’ agreements and that Amazon could withhold approximately two weeks of funds. Disagreement with the arbitrator’s assessment was not enough to justify vacatur.

The court also rejected the “complete irrationality” argument because the Second Circuit does not recognize that theory as an independent ground for vacating an arbitration award under the Federal Arbitration Act.

The court declined to consider Jiakeshu’s public-policy challenge to the agreement’s liability limitation because Jiakeshu had not raised that issue during arbitration. The court held that Jiakeshu forfeited its separate challenge to the arbitration clause by participating in the arbitration without timely objecting to whether the dispute could be arbitrated.

Disposition

The court held that there was no basis to vacate the award. Jiakeshu Technology Limited’s petition to vacate the arbitral award was DENIED, and Respondents’ cross-motion to confirm the award was GRANTED. The Clerk was directed to enter judgment in favor of Respondents and close the case.